Competition probe of pillar banks ruled out

The Competition and Consumer Protection Commission has ruled out an investigation into the level of competition in the banking system.

“I believe a further study would not be useful at the present time as it would not resolve the issues inherent in the sector,” said Isolde Goggin, chairwoman of the Competition and Consumer Protection Commission in a letter to Fianna Fáil TD and finance spokesman Michael McGrath.

“Furthermore, I believe the commission’s resources would be more appropriately utilised in other areas where our work could achieve meaningful change.

Mr McGrath had written to the commission raising concerns about the level of competition in the banking sector and the impact this was having on consumers. He called for a full investigation into the sector. He noted that, in the the UK, the Competition and Markets Authority has recently concluded that banks in that country had failed to meet the needs of retail and SME customers, such as making it easier to switch banks or providing clear information on fees. As a consequence, the authority is launching a full scale investigation in to the banking sector in the UK.

“Competition issues are even more acute in respect of the Irish banking sector,” he said.

There has been a huge reduction in the number of banks operating in Ireland since the financial system collapsed in 2008. Bank of Scotland, Danske Bank, and ACC have been pulled. Anglo Irish Bank and Irish Nationwide have been closed down and AIB and EBS have been merged. Mr McGrath said the two pillar banks — Bank of Ireland and AIB — control about 70% of the market. Irish customers face much higher interest rate charges for standard variable rate mortgages than in other countries, he said.

“The interest rate charged to new customers in Ireland is almost 2% above the average rate across Europe,” said Mr McGrath. “In addition, the market for switching one’s mortgage from one lender to another is almost non-existent.

“New products are extremely rare within the market for home loans, and innovations such as allowing people to retain their tracker mortgage when they move home, have had very limited take up due to the highly restrictive conditions which apply.

“As well as the difficulties encountered by personal customers, SMEs have also raised concerns about how they are treated by banks. In particular, the view has been expressed to me that there is a lack of transparency around how credit decisions are taken and the manner in which fees are set.”

However, in her reply, Ms Goggin said the banks were subject to EU state aid rules, which include a number of measures to promote competition in the banking sector.These are aimed at improving customer mobility and protection as well as enhanced transparency. The bank switching code had been put on a statutory footing and the Central Bank had introduced a revised consumer protection code, said Ms Goggin.

The commission also plays an important role in promoting switching between banks through its financial comparisons website, which receives over one million visitsa year, she added.

It conducts targeted public awareness campaigns and advises on how banking products can be most efficiently used by consumers.